Optimizing Cost and Capital
Many times an organization will cut costs by a certain percentage across the entire organization as a way of demonstrating fairness. This approach is not effective generating energy and momentum for a turnaround. A focus on costs without a clear vision of desired results simply leads to more cost-cutting and frustration.
We help our clients optimize their cost and capital structure by viewing cost as it is linked to the overall strategy and outcomes. The usual result is that organizations will increase investment in some areas and decrease investment in others. Generally, only a few areas of business life generate the most revenue. The key is identifying these areas in an intentional way.
Our strategy looks at two categories of cost:
Problem of Fixed Costs – when fixed cost levels are high, it is harder for an organization to reach a break-even point
Solution: We identify the optimum level of fixed cost in the context of your strategic plan and organizational structure. We also identify and maximize the value of your hidden assets such as real estate, rights-of-way, and intellectual capital
Problem of Working Capital – each working capital component (inventory, accounts payable and receivable) is usually considered independently and measured only at fixed points in time.
Solution: We develop a more effective working capital strategy based on the concept of an integrated vision of your cash conversion cycle with ongoing metrics and adjustments. This approach results in a real-time optimization of working capital levels.
Identify cost centers and cost points where primary leakage occurs
Reduce and eliminate waste where costs do not drive results
Improve cash flow
Create more capital for investment and distribution to owners and employees
Costs are directly connected to strategic plan and results desired
Identify the cost centers — the most significant areas of costs where reduction can produce positive results
Identify the cost points — the activities in the cost centers that are creating most of the costs
Review entire business as a cost stream — the flow of costs in the business
Produce a cost diagnosis — an in depth analysis of the cost characteristics
Develop a comprehensive cost reduction strategy — a plan to reduce costs and streamline your business so that you will have more money to keep, spend or invest
Would you like to optimize costs and capital in your organization? Let’s Talk